Analysis: Samsung-RIM deal could kill Apple (or Samsung)

Now there are some best practices from companies such as EMC (with RSA and VMware) on completing mergers like this-and some good recent examples from Hewlett-Packard (with Compaq, Palm and EDS) on how not to do them. The problem is that most companies tend to gravitate toward the HP methodology of high-integration mergers, not the EMC (and, more recently, Dell) method that's designed to actually protect the assets acquired.

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Let's use the rumour of Samsung purchasing RIM to compare the right way and the wrong way to do a merger - in the hope that if Samsung does do this, it's done the right way.

High Reward-But Higher Risk

The stakes on this effort are high. If Samsung could pull this off, it would emerge as arguably the king of the smartphone space and would have the capability, through RIM's impressive IP portfolio, to move from the defensive to the offensive with its Apple litigation or, at the very least, force Apple to settle.

(The ongoing Apple-Samsung trial has both companies alleging that the other infringed upon its patents. Apple claims the Galaxy smartphones and Galaxy Tab PCs are copies of the iPhone and iPad, respectively, while Samsung claims that Apple stole the idea for the iPhone from mock-ups of a Samsung touchscreen phone, not to mention from the designs of Sony and other companies, and that Apple has further infringed on Samsung's patents for its 3G technology. In short, it's the patent trial of the century.)

Meanwhile, Samsung could also to step out from under Google and create a better Apple alternative by becoming more vertically integrated. Finally, the company would be better positioned in the emerging Asian market than Apple.

Done right, the combined company could parley its new dominance in smartphones to dominance in tablets, using the combined advantage of Asian market and business penetration with RIM. It wouldn't be a good scenario for Apple, Microsoft or Google.

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If Samsung tries and fails, though, it could end up on life support like Sony or Nokia. Microsoft and Google, upset about the deal to begin with, would be unlikely to step in and help. While Samsung clearly has other businesses, the scale of this failure would cripple Samsung and likely allow competitors to gain market share in most areas. Samsung's epitaph could be "Bought RIM, Executed Badly."

In short, if Samsung does buy RIM, it would either be king of the world or extinct. Given the resources involved, there's little chance of a more moderate outcome. That's high stakes indeed.

Integration Mergers: Great In Theory, Catastrophic In Practice

The reason that integration mergers are so popular is the same reason why they commonly fail: They are designed to simplify management by forcing the acquired company into the mold of the acquiring company. If we were talking about a marriage, this would be like surgically connecting the bodies in order to limit the differences. While small mergers, like transplants, can be made to work, large ones tend to be too shocking to the entire entity, and the operations fails.

An integration merger sounds good because, on paper, all the executive titles match up and all the processes are the same. An executive looking down thinks he sees similar things, but the reality is that this process is so invasive that it tends to destroy the asset that was acquired catastrophically.

The process takes a company-Palm, Sun, and (hypothetically) RIM-that isn't healthy to begin with and puts it through a pervasive blender of changed polices, reporting structures, compensation systems, decision systems, a never-ending stream of executives from the acquiring company "who know better and know nothing," and management systems. In effect, it turns the entire company into a new employee.

The (expected) massive decline that follows then puts the acquiring company under massive financial stress. Executives from the acquiring move firm into triage on the acquired firm with no real understanding of what made the acquired firm different. Top employees and from the acquired firm either get shot down for new positions or look for employment elsewhere. What's particularly sad is that the executives the acquiring firm sends over often weren't performing well in their original riles, making them doubly damaging.

At the core of the problem is the fact that the effort seems designed to ensure that the acquiring company's management team avoids having to learn what makes the acquired company unique. The acquiring company also gets to avoid the appearance of employee differences between the two firms such as compensation, title and span of control.

Preservation Mergers Puts Assets Before Executives

Dell and EMC's big mergers, on the other hand, follow a different path Management's desire to avoid special training is subordinated to the need to protect the expensive assets that have been acquired. The first steps aren't to rationalize the processes between the firms but to identify the top human and physical assets (including customer relationships) and make sure they are first protected and then enhanced. This process was first developed at IBM after a huge string of expensive acquisitions that Big Blue destroyed, and Dell and EMC (including subsidiary VMware) have improved on the process. Dell's head of mergers and acquisitions even came from IBM.

The acquired companies either remain separate, managed as assets or merge into common entities if doing so will enhance then. The priority remains protecting and improving what has been purchased. It is an investment, after all. The companies avoid cross pollination of employees, except at most senior levels, and the focus here is not to change the acquired company but often, as was the recent case with VMware and Pat Gelsinger at EMC, to provide breadth to the executives changing rolls.

Dell and EMC have shown that, if focus remains on the assets, both companies' value will rise-and the kind of catastrophic results showcased by Palm's destruction and the recent $8 billion HP write-down of EDS can be avoided.

Samsung Acquiring RIM Would Make History

Its unlikely that Samsung would acquire RIM because of the amount of risk involved for Samsung. If it weren't for the fact that Samsung could lose the Apple litigation, I doubt the deal would happen. However, the Apple litigation appears to be forcing Samsung to look at ever more creative options, and buying RIM would likely top its list, given that settling with Apple-short of exiting the smartphones and tablet markets-is unlikely otherwise.

If it does buy RIM, Samsung is likely to destroy RIM unless it follows EMC and Dell's examples and protects what it buys. Given that the cost of failure would be catastrophic to Samsung and RIM, the company's leaders need to make the right choice. History, and Samsung's lack of experience with large mergers, tells me it won't. Either way, Samsung will make history.

Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance and Security. Currently, Rob writes on emerging technology, security and Linux for a variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.

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Read more about mergers/acquisitions in CIO's Mergers/Acquisitions Drilldown.